Tuesday, February 17, 2009

"From the Labours of Others": The War Bonds Controversy and the Origins of the Constitution in New England, by Woody Holton

OF all the conflicts that roiled New England politics between the conclusion of the Revolutionary War in 1783 and the ratification of the United States Constitution in 1788, perhaps none was so significant as the debate over how much money the state governments should transfer from taxpayers to their fellow citizens who had invested in state and federal war bonds.1 Historians have shown that this quarrel lay at the root of Shays's Rebellion in Massachusetts. It also played a significant role in the Exeter Riot in New Hampshire, Connecticut's embarrassingly explicit defiance of a congressional requisition, and the Rhode Island legislature's infamous decision to print paper money. Because these agrarian rebellions and resulting legislative relief packages in turn helped persuade numerous citizens—not only in New England but in the rest of the country as well—to embrace the Constitution, the debate over the war bonds merits considerably more scholarly attention than it has received. Although Congress and all thirteen state governments printed paper money during the Revolutionary War and loans and subsidies eventually came in from overseas, one of the most important mechanisms of war finance was the issuance of bonds, not only to people who provided cash to the government but also to army contractors and soldiers. The federal and state governments all emerged from the war saddled with huge bonded debts that powerfully influenced postwar politics. The Massachusetts legislature's solicitude for bondholders accounted for most of the tax it adopted in March 1786. As numerous historians have shown, this levy, the largest in the state's history, was the primary trigger of Shays's Rebellion. Similarly, in New Hampshire, the principal reason farmers surrounded the assembly on September 20, 1786, and demanded that it print paper money was to relieve the heavy tax burden legislators had imposed in order to make interest and principal payments on the state and federal war debts. In Rhode Island, too, one of the farmers' most pressing motives for demanding paper money was to ease their tax burden. In the spring 1786 elections, Rhode Island advocates for a paper currency seized control of the legislature, printing £100,000 worth of money that rapidly depreciated. Connecticut taxpayers were so angry at the taxes they were already paying for the benefit of state bondholders that assemblymen did not dare impose an additional, "Continental," levy that would triple direct taxes. Thus, in October 1786 the House of Representatives had to announce that it could not comply with Congress's September 27, 1785, requisition on the states. [War Debt makes the world go round...]

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